The persistence of pricing differentials in dual-listed companies in Hong Kong and mainland China

Abstract

More and more Chinese companies have been listed on Hong Kong and mainland China . The pricing differentials between Hong Kong shares and the corresponding shares have existed persistently, even though the Hong Kong and mainland China markets have been converging continuously. This paper discusses the determinants of the persistence of the price disparity. The market movement, market and investor sentiment are found to be determinant for the H-share discounts, while the exchange rate is not significant. Also, this paper analyzes the different discount rates among some different sectors. Some sectors large discounts relative to the others, and firms in particular sectors are more correlated than the others.